Iran is to shift its foreign currency reserves from dollar to euro and use the euro for oil deals in response to US-led pressure on its economy.

In a widely expected move, Tehran said it would use the euro for all future commercial transactions overseas.

The US, which accuses Tehran of supporting terrorism and trying to obtain nuclear weapons, has sought to limit the flow of dollars into Iran.

It wants the United Nations Security Council to impose sanctions on Iran.

Dollar squeeze

Analysts said Tehran had been steadily shifting its foreign-held assets out of dollars since 2003 and that Monday's announcement was unlikely to affect the value of the dollar, which has weakened significantly in recent months.

There will be no reliance on dollars

Gholam-Hussein Elham, Iranian spokesman

An Iranian spokesman said all its foreign exchange transactions would be conducted in euros and its national budget would also be calculated in euros as well as its own currency.

"There will be no reliance on dollars," said Gholam-Hussein Elham.

"This change is already being made in the currency reserves abroad."

The currency move will apply to oil sales although it is expected that Iran, the world's fourth largest oil producer, will still accept oil payments in dollars.

Nuclear trigger

Washington has sought to exert financial pressure on Iran, which it accuses of flouting international law by trying to acquire nuclear weapons.

Most international banks have stopped dollar transactions with Iran and some firms have ceased trading with Iran altogether in anticipation of possible future sanctions.

The dollar slipped slightly against the euro in New York trading although analysts said they did not expect the reaction to be too severe.

"It is something they have been saying they are going to do for quite a long time now, so I wouldn't expect any market reaction," said Ian Stannard, an economist with BNP Paribas.

The BBC's Tehran correspondent Frances Harrison said Iranian businessmen were complaining about delays in securing letters of credit and saw current conditions as a prelude to the imposition of sanctions.

Tehran has urged Iranian businesses to open letters of credit in euros in the future.